John Dizard has said that $1.5 billion is lost annual as commodities index investors roll their monthly contracts and large traders engage in what is known as “date rape”. That was as of a year ago; the numbers are no doubt bigger due to larger trading volumes.

Having said that, there is not neat way to separate speculators from investors. The simplest way to cut back on speculative froth is to raise margin requirements. If commodities resume their parabolic rise, this is just about certain to be implemented. The political pressure to do so would be enormous.

Cassandra had a funny post on that idea.

Nothing to see there.

“I think a temporary tax on speculative trading in commodities and energy futures needs to be implemented.”

Another bonehead idea from someone who doesn’t understand the value of liquidity.

n order to promote large, liquid sizes in its benchmark securities and in light of potential reduced borrowing needs in the near future, Director Ramanathan noted that one possible option would be to discontinue the 3-year note following the May 2007 auction. Director Ramanathan noted that current issuance sizes across bills and coupons may be approaching their lower limits. Discontinuing the 3-year note would promote liquidity in bills and other benchmark securities and eliminate the need for Treasury to resort to larger cuts across the curve which could impede market efficiency.

One member raised caveats including uncertainty about the Alternative Minimum Tax provisions, war expenditures, and cash outflows starting in 2008 and 2009. This member noted that if the fiscal situation becomes more pessimistic, the discontinuance of the 3-year note may put significant pressures on other instruments. This same member noted, however, that outlays remain below trend, and this might continue into the 2008 elections as Congress potentially remains in gridlock.

Re: May 2, 2007
HP-376

Minutes Of The Meeting Of The
Treasury Borrowing Advisory Committee
Of The Securities Industry and Financial Markets Association
May 1, 2007

Oh well, thet are still out there, but…

The treasury discontinued the 3 year note a while ago. The 3 year quote you see probably has a lower duration than the 2 year. I would ignore it.

I never looked at 2 year vs. three yields, will keep an eye out.

http://stockcharts.com/h-sc/ui?s=$UST3M&p=D&b=5&g=0&id=0

http://stockcharts.com/charts/YieldCurve.html

When you set up the animation, you can freeze the year around 2007/2008 and then increase the tail length to max, then slide the red bar back and forth to see the tail changes.

Seems obvious we have recession problems, but fun chart. It would be nice to be able to adjust the calender though!

What think of this:

The 2 year Treasury yield Thursday is @ 1.58% while the 3 year is @ 1.46%; a month ago. I don’t see anyone picking up on this!

Shortly after Katrina, the yield of the 2-year U.S. Treasury note was briefly and temporarily higher than the yield of 3-year Treasury.

Also see: Although many interest rate analysts prefer to study the 2 versus 5 year Treasury notes and the 5 versus the 10 year Treasury note comparative returns, there is much evidence that the shorter end of the yield curve is the more telling portion of the curve. This part of the interest rate spectrum appears to be the most useful in telegraphing the earliest warning signs of an impending downturn in the economy.

“Global trade slowed almost to a standstill over the new year, threatening to shrink for the first time since the US economy went into recession in 2001.

An indicator produced by the Bureau for Economic Policy Analysis, a Dutch research institute, showed that in the three months to January world trade in goods rose at annualised rate of 0.2 per cent over the previous three months.

The equivalent growth rate in the three months to October was 6.9 per cent.”

Copper’s low was about 70c/pound at the beginning of this run 5-6 years ago. Take into account currency changes that puts it at say double, $1.40. That probably isn’t a sustainable price, but the $3.50 or/lb it is now is still a fairly strong price, meaning earnings are bloated…

Indeed, all the financial reports I’ve looked at for 4th quarter for base metals show that they took a killing. I seriously doubt the economy will allow prices to remain strong.